Preparing a flexible budget and performance report
This continues the Piedmont Computer Company situation from Chapter 22. Assume Piedmont Computer Company has created a standard cost card for the PCC model tablet computer, with overhead allocated based on direct labor hours:
$ 300 per tablet
3 hours per tablet at $26 per hour
3 hours per tablet at $5 per hour
$54,000 per month
During the month of September, Piedmont Computer Company incurred the following costs while manufacturing 1,100 PCC model tablets:
1. Prepare a flexible budget for September for 900, 1,000, and 1,100 PCC model tablets. The tablet has a standard sales price of $675. List variable costs separately.
2. Using 1,000 PCC model tablets for the static budget, prepare a flexible budget performance report for September. Total sales revenue for the month was $767,800. The company sold 1,100 tablets.
3. What insights can the management of Piedmont Computer Company draw from the performance report?
The budget that gets adjusted according to the level of activity the company achieves is known as a flexible budget. This budget gets adjusted according to the business’s cost variation.
Budgeted per unit cost
Less: Direct material
Less: Direct labor
Less: variable overhead
Less: Fixed overhead
Total cost of goods sold
Flexible budget variance
Sales volume variance
Flexible budget variance (F)
Sales volume variance (F)
Static budget variance (F)
The performance report reflects that the flexible budget variance, sales volume, and static budget variance are favorable. It means that the business entity can control the cost and sales revenue.
Marsh Company uses a standard cost system and reports the following information for 2018:
3 yards of cloth per unit at $1.05 per yard
2 direct labor hours per unit at $10.50 per hour
Overhead allocated at $5.00 per direct labor hour
2,600 yards of cloth were purchased at $1.10 per yard
Employees worked 1,800 hours and were paid $10.00 per hour
Actual variable overhead was $1,700
Actual fixed overhead was $7,300
Direct materials cost variance $ 130 U
Direct materials efficiency variance 420 F
Direct labor cost variance 900 F
Direct labor efficiency variance 2,100 F
Variable overhead cost variance 1,500 U
Variable overhead efficiency variance 1,500 F
Fixed overhead cost variance 600 U
Fixed overhead volume variance 1,600 F
Marsh produced 1,000 units of finished product in 2018. Record the journal entries to record direct materials, direct labor, variable overhead, and fixed overhead, assuming all expenditures were on account and there were no beginning or ending balances in the inventory accounts (all materials purchased were used in production, and all goods produced were sold). Record the journal entries to record the transfer to Finished Goods Inventory and Cost of Goods Sold (omit the journal entry for Sales Revenue). Adjust the Manufacturing Overhead account
Question: Preparing an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets
The Langley Batting Company manufactures wood baseball bats. Langley’s two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Langley sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for $40; the adult bat sells for $65. Langley’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Langley’s balance sheet for December 31, 2018, follows:
Other data for Langley Batting Company for the first quarter of 2019:
a. Budgeted sales are 1,200 youth bats and 2,600 adult bats.
b. Finished Goods Inventory on December 31, 2018, consists of 300 youth bats at $14 each and 950 adult bats at $18 each.
c. Desired ending Finished Goods Inventory is 350 youth bats and 300 adult bats; FIFO inventory costing method is used.
d. Direct materials requirements are 48 ounces of wood per youth bat and 56 ounces of wood per adult bat. The cost of wood is $0.25 per ounce.
e. Raw Materials Inventory of December 31, 2018, consists of 24,000 ounces of wood at $0.25 per ounce.
f. Desired ending Raw Materials Inventory is 24,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).
g. Each bat requires 0.7 hours of direct labor; direct labor costs average $18 per hour. h. Variable manufacturing overhead is $0.30 per bat.
i. Fixed manufacturing overhead includes $1,300 per quarter in depreciation and $20,140 per quarter for other costs, such as insurance and property taxes.
j. Fixed selling and administrative expenses include $9,000 per quarter for salaries; $2,500 per quarter for rent; $1,000 per quarter for insurance; and $200 per quarter for depreciation.
k. Variable selling and administrative expenses include supplies at 2% of sales.
1. Prepare Langley’s sales budget for the first quarter of 2019.
2. Prepare Langley’s production budget for the first quarter of 2019.
3. Prepare Langley’s direct materials budget, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.
4. Prepare Langley’s cost of goods sold budget for the first quarter of 2019.
5. Prepare Langley’s selling and administrative expense budget for the first quarter of 2019.
Preparing a financial budget—cash budget
Booth has $12,500 in cash on hand on January 1 and has collected the following budget data:
Sales $ 529,000 $ 568,000
Cash receipts from customers 443,000 502,200
Cash payments for direct materials purchases 180,624 160,284
Direct labor costs 135,010 113,348
Manufacturing overhead costs (includes
depreciation of $900 per month) 55,058 53,922
Assume direct labor costs and manufacturing overhead costs are paid in the month incurred. Additionally, assume Booth has cash payments for selling and administrative expenses including salaries of $40,000 per month plus commissions that are 1% of sales, all paid in the month of sale. The company requires a minimum cash balance of $20,000. Prepare a cash budget for January and February. Round to the nearest dollar. Will Booth need to borrow cash by the end of February?
Question: Preparing an operating budget—sales budget; inventory, purchases and COGS budget; and S&A expense budget Burton Office Supply’s March 31, 2018, balance sheet follows:
The budget committee of Burton Office Supply has assembled the following data: a. Sales in April are expected to be $200,000. Burton forecasts that monthly sales will increase 2% over April sales in May. June’s sales will increase by 4% over April sales. July sales will increase 20% over April sales. b. Burton maintains inventory of $15,000 plus 25% of the cost of goods sold budgeted for the following month. Cost of goods sold equal 50% of sales revenue. c. Monthly salaries amount to $7,000. Sales commissions equal 5% of sales for that month. d. Other monthly expenses are as follows: • Rent: $2,000 • Depreciation: $200 • Insurance: $100 • Income tax: $2,200
1. Prepare Burton’s sales budget for April and May 2018. Round all calculations to the nearest dollar.
2. Prepare Burton’s inventory, purchases, and cost of goods sold budget for April and May.
3. Prepare Burton’s selling and administrative expense budget for April and May.
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